Payment Reform: Models in California and Provisions under ACA

Doctors and hospitals are paid for services based on different types of payment models. The issue of reforming payment in order to reduce costs and improve quality through aligned incentives has been an ongoing discussion in California and various initiatives have been tested and implemented. In addition, ACA provides a number of payment reform opportunities, both new and tested, in order to improve the value of health care delivery.

At last week’s Center for Health Improvement (CHI) briefing, Suzanne Delbanco (Executive Director, Catalyst for Payment Reform) provided an overview of healthcare payment systems in California and the potential for improvement with provisions in ACA.

Current Payment Models in California

There are currently 3 base payment models in California, fee for service (FFS), bundled payment, and global payment (see below). Each model has the potential to provide both positive and negative incentives to the provider. In FFS models, providers are paid per service provided. Although FFS models encourage providers to delivery services when needed, they also incentivize providers to deliver unnecessary services. Bundled payment, also known as episode-based payment, is a single reimbursement for multiple providers that covers all services involved in the patient’s care. Global payments are fixed-dollar payments for the care that patients may receive in a given time period, such as a month or year. Global payments incentivize providers to keep costs down, but have also been accused of deterring providers from providing necessary services. According to CHI, global payment is the predominant form of payment in California due to a high percentage of managed care enrollment. As we move towards global payment, there is an increase for provider accountability and provider collaboration, but also increased risk, resistance and payment complexity.

Payment Reforms in ACA

ACA’s 3 major goals are to 1) expand coverage; 2) control health care costs; and 3) improve the health care delivery system. Payment reform provisions play a role in achieving the second goal through reforms to Medicaid (no federal payments for hospital-acquired conditions), Medicare (no reimbursement for preventable readmissions and/or hospital-acquired conditions, creation of ACOs, and the establishment of an innovations center) and the third goal through reforms to medical malpractice, implementation of bundled payment pilots, increased payments to primary care providers, and value-based purchasing programs for doctors, hospitals and other settings.

California Payment Reform Initiatives

CHI’s recent policy brief outlines several state initiatives to change incentives. Pay for performance (P4P) rewards providers for improving their quality of care by adhering to evidence-based guidelines or enhancing the patient experience. P4P models might solve the problems associated with FFS and global payments by focusing on quality rather than costs. Bundled payments incentivize alignment among providers by encouraging them to collaborate in coordinating care and reducing unnecessary services. Bundled payments incentivize providers to improve quality by avoiding costly hospital readmissions. Accountable Care Organizations (ACOs) allow providers to receive a portion of savings. This provides incentives for collaboration amongst a group of providers to reduce costs by providing quality, coordinated care for each patient.

Look out for the public release of CHI’s policy brief on payment reform, coming soon! Also, if you are interested in joining ITUP’s ongoing issue workgroup on payment reform, e-mail me at ashley@itup.org.